THE Bank of Thailand unexpectedly cut its key interest rate for the first time in four months, acting after disappointing growth data and public calls for lower borrowing costs from both the prime minister and the International Monetary Fund.
Six of the seven-member Monetary Policy Committee voted to lower the one-day repurchase rate by 25 basis points to 2 per cent on Wednesday (Feb 26), with one opting for a hold. Only six of 23 economists surveyed by Bloomberg News predicted the decision, with the rest expecting the rate to be unchanged.
Stocks gained, while the baht maintained losses after the surprise move, which comes after the government intensified its year-long campaign for lower borrowing costs, with Prime Minister Paetongtarn Shinawatra last week making a rare public appeal for a cut. The central bank previously argued that global uncertainties meant that preserving policy space was appropriate, but the IMF echoed Paetongtarn’s arguments that a reduction would help Thais struggling under a mountain of household debt.
“The Thai economy is expected to expand at a slower pace than previously estimated due to the industrial sector being pressured by structural problems and competition from foreign products, as well as higher risks from trade policies of major economies,” the BOT said in a statement. That’s “even though the economy is supported by domestic demand and tourism.”
The central bank did not issue a new growth forecast, having previously predicted the economy will expand 2.9 per cent in 2025. Data last week showed South-east Asia’s largest economy grew just 2.5 per cent in 2024, less than economist estimates and half the pace of neighbouring Indonesia.
The BOT statement noted that headline inflation is tending to stay on the lower bound of its 1-to-3 per cent target range, but that it faces downside risks from oil prices and domestic energy subsidies.
Governor Sethaput Suthiwartnarueput this month said he considers trade policy spillover as the central bank’s main challenge, warning it is “particularly hard” to handle shocks from the supply side, which will likely increase.
Thailand, which posted a trade surplus of US$35.4 billion with the US in 2024, is planning to boost imports of US ethane and agricultural products to avoid getting into the crosshairs of US President Donald Trump, who has said he will impose tariffs on countries that sell more to America than they buy.
Import flooding is a factor constraining Thailand’s recovery, Sethaput told a panel earlier this month, adding that the country’s manufacturing sector had been badly hit. The local media have reported that thousands of Thai factories are unable to compete with cheap imported goods have shuttered in the past few years. BLOOMBERG
